The government raises a considerable part of its financial resources to bridge the budgetary gap through various National Saving Schemes (NSS) offered to the general public. The rates of return on these schemes are usually changed after every two months and are linked to cut-off yield of long-term Pakistan Investment Bonds (PIBs). According to an announcement by Central Directorate of National Savings (CDNS) on 1st January, 2019, the profit rates of Behbood Saving Certificates, Pensioner Benefit Accounts and Shuhada Family Welfare Accounts were increased by 2.40 percent from 11.88 percent to 14.28 percent while rate of return on Defence Saving Certificates was raised by 2.44 percent to 12.47 percent. Profit on Special Saving Certificates (registered accounts) was raised by 2.74 percent to 11.57 percent. Rate of return on Regular Income Certificates was jacked up from 9.72 percent to 12.00 percent and on Saving Accounts from 7.0 percent to 8.50 percent. Profit rate on 3-month Short-Term Saving Certificates was increased by 1.52 percent to 9.80 percent, on 6-month Short-Term Saving Certificates by 1.50 percent to 9.88 percent and on 9-month Short Term Saving Certificates by 1.50 percent to 9.98 percent.
There is indeed no doubt that the present sharp increase in NSS rates, ranging from 1.50 percent to 2.74 percent per annum, by the CDNS has been announced due to the hike in SBP's policy rate by 1.50 percent to 10.0 percent in its latest monetary policy review and the consequent impact on the PIB yields. Obviously, higher inflation rate and a very grave position in the external sector had forced the State Bank to raise the interest rate structure in order to contain liquidity and mop up excess demand in the economy with a view to restoring financial stability in the country. It may be mentioned that this was the 5th increase on returns of NSS schemes since June, 2018 and such a trend could be expected to continue unless and until inflationary pressures in the economy are not tamed and external sector position of the country does not improve. An increase in the NSS rates was of course expected to raise more resources from the non-banking sources to meet the budget deficit which would be less inflationary. The move could also somewhat improve the domestic saving rate of the economy by making the real rate of return on deposits more attractive, check the depreciation of the rupee and increase the flow of funds from abroad due to relatively better rate of returns in Pakistan. Needless to add, that investors in NSS, who generally belong to middle class and are mostly inactive, would be more than happy for the higher rate of remuneration on their savings. The increase would partly offset the impact of inflation on their lives.
Although the present increase in NSS rates was almost inevitable, it would have certain negative side-effects. Debt servicing of the country would certainly increase and the fiscal position of the government could further aggravate. Private sector credit and investment could be curtailed to a certain extent because of the higher lending rates which are almost sure to follow. Commercial banks and other financial institutions would also be obliged to offer higher rate of returns on deposits to compete with the NSS schemes and charge higher lending rates. This could result in lower investment, higher unemployment and retardation in growth. Obviously, there are no painless solutions when the country is facing the prospects of growing macroeconomic imbalances.